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W ASSuM1lCn
Lconomlc loglc Lells us LhaL slmllar asseLs should sell aL slmllar prlce
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value an asseL by looklng aL Lhe prlce aL whlch a comparable asseL has changed hands beLween
a reasonably lnformed buyer and seller
W Commonly applled ln real esLaLe
W 1he approachcan be reflecLed ln a slmple formula
v
1
x
L
(v
C
/ x
c
) where
v
1
appralsed value of LargeL flrm or asseL
x
L
observed varlable for LargeL flrm LhaL drlves value
v
C
value of comparable flrm
x
c
observed varlable for comparable company
S1LS ln ul8LC1 CCMA8lSCn
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W Analyse Lhe economy
W Analyse Lhe lndusLry
W Analyse Lhe sub[ecL company
W SelecL comparable companles
W Analyse sub[ecL and comparable companles
W Analyse mulLlples
Care should be Laken Lo choose approprlaLe varlable usually flnanclal varlables chosen
ConslsLency essenLlal whlle comparlng varlables
lew commonly used raLlos/ mulLlples
W llrm value Lo sales
W llrm value Lo book value of asseLs
W llrm value Lo 8lu1
W llrm value Lo 8l1
W LqulLy value Lo equlLy earnlngs (rlce/ Larnlngs mulLlple)
W LqulLy value Lo neL worLh (markeLbook raLlo)
W value Lhe sub[ecL company
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l lL ls a popular meLhod because lL relles on mulLlples LhaL are easy Lo geL
ll Lspeclally useful when comparable companles are Lraded and prlced falrly
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l MulLlples amenable Lo mlsuse and manlpulaLlon
ll Cholce of comparable companles sub[ecLlve as companles dlffer ln Lerms of
rlsk and growLh
lll MulLlples used reflecL valuaLlon errors (under or over) of Lhe markeL Lg
sofLware companles
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1he flnanclal lnformaLlon ls avallable for company u a pharmaceuLlcal company 8ased on an
evaluaLlon of several pharmaceuLlcal companles companles A8 and C have been found Lo be
comparable Lo company u 1he flnanclal lnformaLlon foe Lhese company ls glven below
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